Supreme Court Upholds Specific Performance of Land Sale Agreement: Leeladhar vs. Vijay Kumar (2019)

Date of the Judgment: 26 September 2019

Citation: Not Available

Judges: Deepak Gupta, J., Aniruddha Bose, J.

Can a seller refuse to honor a registered agreement to sell land, claiming it was merely a sham transaction to secure a loan? The Supreme Court of India recently addressed this question in a case involving a dispute over the specific performance of a land sale agreement. The core issue was whether the seller could avoid specific performance by arguing that the agreement was not a genuine sale agreement but a security for a loan. The bench comprised Justices Deepak Gupta and Aniruddha Bose, who delivered a unanimous judgment.

Case Background

On 15 February 1985, Leeladhar agreed to sell 18 bighas of land to Deshraj for Rs. 40,000. Deshraj paid Rs. 35,000 as advance, and the agreement was registered on 18 February 1985. On 26 March 1985, a second document was executed where Leeladhar received the remaining Rs. 5,000 and allegedly gave possession of the land to Deshraj. On 20 January 1988, Deshraj sent a legal notice to Leeladhar, requesting him to execute the sale deed. The plaintiffs claimed that they went to the Sub-Registrar’s office on 15 February 1988, but Leeladhar did not appear. Deshraj passed away on 16 May 1988. Subsequently, his legal representatives (the respondents) filed a suit for specific performance, seeking possession of the land or, alternatively, a refund of Rs. 40,000 with interest. Leeladhar argued that the agreement was a sham document, created to secure a loan from Deshraj, who was an unlicensed moneylender. He also claimed to have repaid the entire amount with interest on 3 March 1987.

Timeline:

Course of Proceedings

The trial court decreed the suit in favor of the plaintiffs. Leeladhar appealed, and the first appellate court partly allowed the appeal, denying specific performance. The High Court set aside the first appellate court’s order and remanded the matter to be decided afresh, specifically considering Section 20(2)(c) of the Specific Relief Act, 1963. After remand, the first appellate court dismissed Leeladhar’s appeal, upholding the trial court’s order. The High Court dismissed Leeladhar’s second appeal, leading to the present appeal before the Supreme Court.

Legal Framework

The Supreme Court considered Section 20 of the Specific Relief Act, 1963, which deals with the court’s discretion in granting specific performance. Section 20(2)(c) of the Specific Relief Act, 1963 states:

“20. Discretion as to decreeing specific performance.—
(1) The jurisdiction to decree specific performance is discretionary, and the court is not bound to grant such relief merely because it is lawful to do so; but the discretion of the court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a court of appeal.
(2) The following are cases in which the court may properly exercise discretion not to decree specific performance:—
(a) xxx xxx xxx
(b) xxx xxx xxx
(c) where the defendant entered into the contract under circumstances which though not rendering the contract voidable, makes it inequitable to enforce specific performance.
Explanation 1.—Mere inadequacy of consideration, or the mere fact that the contract is onerous to the defendant or improvident in its nature, shall not be deemed to constitute an unfair advantage within the meaning of clause (a) or hardship within the meaning of clause (b).
Explanation 2.— The question whether the performance of a contract would involve hardship on the defendant within the meaning of clause (b) shall, except in cases where the hardship has resulted from any act of the plaintiff subsequent to the contract, be determined with reference to the circumstances existing at the time of the contract.”

This section allows the court to deny specific performance if the contract was entered into under circumstances that make it inequitable to enforce, even if the contract is not voidable. The court also noted that the discretion under this section is not arbitrary but must be guided by judicial principles.

Arguments

Appellant’s Arguments (Leeladhar):

• The agreement to sell was a sham document, executed only to secure a loan given by Deshraj, who was an unlicensed moneylender.
• Leeladhar claimed that he had repaid the entire loan amount with interest to Deshraj on 3 March 1987.
• The plaintiffs were not in possession of the land.
• Deshraj had executed various such documents but had not filed suits for specific performance, indicating this document was also for securing a loan.
• Given the circumstances, the court should exercise discretion against granting specific performance.

Respondent’s Arguments (Legal representatives of Deshraj):

• All lower courts had concurrently found that the document was an agreement to sell, not a sham transaction.
• Leeladhar had received the full sale consideration and had handed over possession of the land to Deshraj.
• There was no delay in filing the suit, as it was within the limitation period.
• The respondents were in possession of the land, which negates any delay in seeking specific performance.
• The lower courts had rightly decreed the suit for specific performance as the document was an agreement to sell and not a security for a loan.

Innovativeness of the argument: The appellant argued that the agreement was a sham document and was for the purpose of securing a loan. This was a novel argument as the document was registered and the full sale consideration was paid.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

1. Whether the decree of specific performance could be denied under Section 20(2)(c) of the Specific Relief Act, 1963, given the appellant’s claim that the agreement was a sham document.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court did not explicitly refer to any specific cases or books. However, it considered the following legal provision:

• Section 20(2)(c) of the Specific Relief Act, 1963: This section allows the court to deny specific performance if the contract was entered into under circumstances that make it inequitable to enforce, even if the contract is not voidable.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Section 20(2)(c) of the Specific Relief Act, 1963: The court considered this provision but held that it was not applicable in this case. The court reasoned that since the document was a genuine agreement to sell and the defendant had received full consideration and handed over possession, there was no reason to exercise discretion against specific performance.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the concurrent findings of fact by the lower courts that the agreement was a genuine agreement to sell and not a sham transaction. The court emphasized that Leeladhar had received the full sale consideration and handed over possession of the land. The court also noted that the suit was filed within the limitation period and there was no delay on the part of the plaintiffs. The court found no reason to exercise its discretion against specific performance under Section 20(2)(c) of the Specific Relief Act, 1963.

Fact:Law Ratio

The court’s reasoning was primarily based on the factual findings of the lower courts, which held that the agreement was a genuine agreement to sell. The court’s interpretation of Section 20(2)(c) of the Specific Relief Act, 1963, was secondary to the factual findings. The court held that the section did not apply as the facts did not support the argument that the contract was inequitable to enforce.

The court considered the appellant’s argument that the agreement was a sham document but rejected it based on the concurrent findings of fact by the lower courts. The court also considered the legal provision under Section 20(2)(c) of the Specific Relief Act, 1963, which allows the court to deny specific performance if the contract was entered into under circumstances that make it inequitable to enforce. However, the court held that this provision did not apply as the facts did not support the appellant’s argument.

The court’s decision was based on the following reasons:

• The lower courts had concurrently found that the document was a genuine agreement to sell.
• Leeladhar had received the full sale consideration.
• Leeladhar had handed over possession of the land to Deshraj.
• The suit was filed within the limitation period.
• There was no reason to exercise discretion against specific performance under Section 20(2)(c) of the Specific Relief Act, 1963.

The court stated, “once we come to the conclusion that the agreement was an agreement to sell and after entering into the agreement to sell, Leeladhar received the full sale consideration and handed over the possession to Deshraj, the question of exercising any discretionary favour to the appellant does not arise.”

The court further observed, “To take benefit of clause (c) of sub-section (2) of Section 20 of the Specific Relief Act, the defendant in a suit for specific performance must show that he entered into the contract under the circumstances which though rendering the contract voidable, make it inequitable.”

The court concluded, “In view of the above, we find no merit in the appeal which is accordingly dismissed.”

There were no minority opinions in this case. The judgment was unanimous.

The judgment reinforces the principle that courts will generally uphold agreements to sell, especially when there is evidence of full consideration and transfer of possession. It clarifies that the discretion under Section 20(2)(c) of the Specific Relief Act, 1963, will not be exercised in favor of a party who has entered into a genuine agreement to sell and has received full consideration.

Key Takeaways

• Courts will generally uphold agreements to sell when there is evidence of full consideration and transfer of possession.
• The discretion under Section 20(2)(c) of the Specific Relief Act, 1963, will not be exercised in favor of a party who has entered into a genuine agreement to sell and has received full consideration.
• Concurrent findings of fact by lower courts are given significant weight by the Supreme Court.

This judgment may discourage sellers from attempting to avoid specific performance by claiming that a registered agreement to sell was a sham transaction. It also highlights the importance of fulfilling contractual obligations.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that a decree of specific performance will be upheld when the agreement to sell is found to be genuine, the full consideration has been received, and possession has been transferred. The court clarified that Section 20(2)(c) of the Specific Relief Act, 1963, will not be applicable in such cases. This judgment does not change the existing law but reinforces the principles of specific performance.

Conclusion

The Supreme Court dismissed the appeal, upholding the decree of specific performance. The court found that the agreement to sell was genuine, Leeladhar had received full consideration and had handed over possession. Therefore, the court held that there was no reason to exercise discretion against specific performance. This judgment reinforces the importance of honoring contractual obligations and the weight given to concurrent findings of fact by lower courts.